An Agent-Based Approach to Integrated Assessment Modelling of Climate Change

Abstract

There is an ongoing discussion concerning the relationship between social welfare and climate change, and thus the required level and type of measures needed to protect the climate. Integrated assessment models (IAMs) have been extended to incorporate technological progress, heterogeneity and uncertainty, making use of a (stochastic) dynamic equilibrium approach in order to derive a solution. According to the literature, the IAM class of models does not take all the relationships among economic, social and environmental factors into account. Moreover, it does not consider these interdependencies at the micro-level, meaning that all possible consequences are not duly examined. Here, we propose an agent-based approach to analyse the relationship between economic welfare and climate protection. In particular, our aim is to examine how the decisions of individual agents, allowing for the trade-o between economic welfare and climate protection, influence the aggregated emergent economic behaviour. Using this model, we estimate a damage function, with values in the order %-% for °C temperature increase and having a linear (or slightly concave) shape. We show that the heterogeneity of the agents, technological progress and the damage function may lead to lower GDP growth rates and greater temperature-related damage than what is forecast by models with solely homogeneous (representative) agents.

Representing inequalities in integrated assessment modeling of climate change

“…Here, IAMs can learn from complexity science and agent-based models (ABMs) developed to precisely capture heterogeneity in endowment, characteristics, and preferences. 13 For these models, the diversity of actors and interactions is critical in aiming to represent complexity. 14 ABMs integrating climate and economic components have been developed and used, for example, to study the repercussions of climate impacts in terms of financial instability.…”

Agent-based Integrated Assessment Models: Alternative Foundations to the Environment-Energy-Economics Nexus

“…To consider how Agent-based Models may address some of the critiques levied at Integrated Assessment Models, I consider four ABIAM models: the Dystopian Schumpeter meets Keynes model (DSK hereafter, Lamperti, Bosetti, Roventini, & Tavoni, 2019;Lamperti, Bosetti, Roventini, Tavoni, & Treibich, 2021;Lamperti et al, 2018;Lamperti, Dosi, Napoletano, Roventini, & Sapio, 2020), the ABMIAM model of Safarzynska and van den Bergh (2022), the model of Czupryna, Franzke, Hokamp, and Scheffran (2020) (CFHS hereafter), and the model of Gerdes, Rengs, and Scholz-Wäckerle (2022) (GRSW hereafter). This section introduces the models, their purposes and general macroeconomic structure.…”

“…These were modeled like the cost-benefit DICE IAM to compare calculations of the social cost of carbon, but unlike DICE the shocks are distributed amongst agents based on their relative share of wealth similar to Dennig, Budolfson, Fleurbaey, Siebert, and Socolow (2015). Czupryna et al (2020) propose a global ABIAM model including ten regions and multiple different goods. In each region consumer and capital firms produce their respective goods, and households purchase with preferences for price and a minimum necessary consumption.…”

ABM-IAM: optimal climate policy under bounded rationality and multiple inequalities

“…Even fewer account for complex interlinkages between energy, financial sector and climate change (e.g. Gerst et al 2013, Ponta et al 2018, Lamperti et al 2019, Czupryna et al 2020. The study by Lamperti et al (2019) extends the model by Dosi et al (2010) with a climate cycle to examine the public cost of bailout, i.e.…”

“…Existing climate-economy ABMs, such as reported in Lamperti et al (2019) or Gerst et al (2013), do not consider individual consumers but instead assume aggregate demand, which means they cannot address this issue. An exception is Czupryna et al (2020) who consider individual consumers allocating their budget among various goods from distinct sectors. The model describes agricultural, labour and natural disaster damages.…”